CreditEase Enabling Financial Inclusion through FinTech Source: This case was written by Shwetha Kumari, under the direction of G V Muralidhara, IBS Bangalore. It was compiled from published sources, and is intended to be used as a basis for class discussion rather than to illustrate either effective or ineffective handling of a management situation. 2020, IBS Center for Management Research CREDITEASE INCEPTION Ning launched Chinas first peer-to-peer (P2P) lending company, CreditEase, in 2006. He combined the microcredit concept of Grameen Bank which had turned the traditional banking practices upside down by eliminating the need for collateral and created a banking system based on accountability, mutual trust, creativity, and participation and Zopa, a UK-based peer-to-peer lending company, which provided a mode for the bottom of the society to get access to credit. However, the first challenge Ning faced when he introduced the P2P lending firm from the West into China was that the social credit system in China was still in need of development and was not as mature as its Western counterparts. The Western world had established a social credit database long before China. It was only in 2006 that China started to run its personal credit information database. Thus, compared with the personal credit rating systems in Europe or in the US, Chinas credit rating system was at an infant stage. The second challenge Ning faced was that China was considered a low-trust society. Ning noted, Here, when you ask Chinese people if they trust the credit system, 10 out of 10 say no. That is a huge difference [from the US], representing a huge opportunity or if not done well representing a huge challenge. On the positive side, the tight bank-credit environment in China from 2007 to 2008 helped push the development of the P2P lending businesses. People who could not get loans from banks turned to P2Plending platforms for cash. Meanwhile, CreditEase promised 10% to 12% of returns, which were much higher than those offered by banks. Consequently, it attracted people who had surplus money and wanted to invest it to earn higher returns. The P2P lending market in China was considered to be enormous. Its because people really need help and are not covered by the traditional banking system. There are about 60 million micro-entrepreneurs in cities and 200 million rural poor, so it is a huge market opportunity, said Ning. The maximum loan amount a person could get from CreditEase was about $0.005 million and the maximum repayment period was 48 months. CreditEase took two working days to complete the screening procedure and grant loans to customers. This was much quicker than the commercial banks in China. Hence, the customers of CreditEase were primarily individuals who could not get loans easily from banks because they were not able to provide collateral and those whose needs were not satisfied by the traditional financial system. These included micro-entrepreneurs, students and parents, salaried workers and extremely poor rural women. GROWTH OF CREDITEASE Initial Success In June 2008, the company launched Zhuyedai (Loan to Help Business), which provided basic credit loan products to entrepreneurs and self-employed businessmen. In October the same year, CreditEase received the 2008 China Business Plan Competition Award from the University of Maryland, US. In September 2009, the companys P2P sub-platform YiNongdai was formally launched. This platform allowed people to select borrowers on their own, which mostly included farmers, and complete the entire lending process online. YiNongdai was CreditEases first online financial product that targeted rural villages, particularly women. It had developed a new set of lending rules for such products. The company first created collaborations with non-profit Microfinance Institutions (MFI) in financially challenged areas in China. These MFIs were expected to select from among their loan applicants farmers who met YiNongDais objectives. Their village loan officer would then conduct credit reviews for these applicants. Once the applicant passed the credit review, the MFIs provided loan information to the YiNongDaipl at form. Due to the cyclical nature of agricultural production projects such as breeding and cultivation on which farmers spent their loans, and the fact that the YiNongDai platforms fundraising took time, the MFIs aimed to first lend the money to the eligible farmers with good credit. YiNongDai targeted farmers without any collateral. CreditEase introduced a new business project called NongShangDai, in order to allow more farmers to benefit from Inclusive Finance. By establishing its own service network in rural villages, NongShangDai provided its services to more extensive rural markets. One difference between YiNongDai and NongShangDai was that the latter offered higher credit limits with wider coverage of service areas. Its target customers included urban entrepreneurs and people engaged in new rural construction. CreditEase had generated $29 million in loans since 2006. Though much smaller than P2P giant ProsperMarketplace, Inc. , this amount was close to the $33 million loaned by Kiva, a non-profit organization that allowed people to lend money via the Internet to low-income entrepreneurs and students, after about 3 years of operations. With reported returns of more than 12% and defaults under 1%, it was smooth sailing for CreditEase. Chinas loosening of credit quotas for commercial banks (by 5%) and local commercial banks (by 10%) had an impact on the growth of P2P markets in the country. An article on credit in China mentioned that informal lending flourished when credit quotas were in place and that the observed increase in bank loans partly represented a flow from informal to formal lending. In June 2010, Professor Peter Tufano, Senior Vice Dean of Harvard Business School visited CreditEase to discuss P2P business models. In September, Ning was invited to Peking University to interpret Social entrepreneurship. The same month, CreditEase was also listed as one of the top 30 potential enterprises. Then in March 2011, the company joined Promoting Committee for Inclusive Finance of CASME in charge of strategic development. In September of the same year, CreditEase launched the Xinyi Project to help women accomplish their entrepreneurial aspirations. Until 2011, CreditEase had accumulated 60,000 out of the total borrowers and around 900 of whom were rural poor. Its total lending amount was 0.3 billion and of this, 2.6 million was lent to the rural poor in the country. CreditEase promised to pay the principal on a loan if borrowers defaulted. It also kept aside the equivalent 2% of total loans from its commission to act as protection funds. If a borrower defaulted, CreditEase paid the lender the principal from the protection funds as a means of post-loan management. CREDITEASE RISING THROUGH FINTECH INNOVATIONS CreditEase launched Yirendai, a FinTech based P2P lending platform in 2012 in China. This was an online platform that automated important aspects of its operations and enabled the company to efficiently match borrowers with investors and execute loan transactions. The company tactically focused on prime borrowers, comprising credit cardholders with a salary income, as members of its group tended to be more creditworthy and more receptive to internet finance solutions. Yirendais online marketplace offered qualified borrowers who successfully met the companys borrower requirements with fast and convenient access to affordable credit at competitive prices. All of the loans facilitated through the Yirendai marketplace featured fixed interest rates. To provide a transparent marketplace, the interest rates, service fees, and other charges were all clearly disclosed to borrowers upfront. In 2012, CreditEase introduced the Three Steps of Inclusive Finance. The first was building credit and obtaining funds through small loans. The second was the establishment of financial capabilities by managing investments, insurance, payments, and the like. The last step was helping those not covered by traditional financial systems, like micro-businesses and rural farmers. Those steps allowed people to boost productivity and live better lives. CreditEase took all these three steps in the Chinese financial market. In April 2012, Ning was engaged as the expert of the small-and-medium enterprise policy consulting group of Chinas Ministry of Industry and Information Technology. In December 2012, CreditEase Wealth Management made its first appearance at FINEXPO and attracted a lot of attention from the wealthy class. In March 2013, CreditEase Wealth Managements WeChat service began, primarily for sharing the latest information in terms of Wealth Management. In June 2013, Ning was invited to attend the Fortune Global Forum. In 2013, CreditEase set up a $100 million fund with IDG Capital to invest in China-based startups focusing on the FinTech industry. Talking about the growth of CreditEase, Ning said, Outstanding loans arranged by CreditEase have grown to more than 10 billion yuan (HK$12.5 billion), while financial products it sources from financial institutions for sale to affluent clients came to an even larger number. CreditEase established the Fintech Investment Fund in 2015 to raise, in several tranches, the equivalent of $1 billion. Other funds included a credit fund to invest in international marketplace lending platforms and an Israel Innovation Fund to invest in specific innovative companies. The company collaborated with US-based private investment management company Wellington Management to invest in pre-IPO stage companies. Hou Lin (Lin), Senior VP at CreditEase, stated that their strategy was helping high net worth individuals with access to P2P lending products while also giving them a hand in diversifying with assets beyond China in both private equity and publicly traded companies. Subsequently, CreditEase launched products with Wellington in the property and stock markets at an opportune time. Ray Helfer, Director, Wellington Management, stated, It is important for us because we are paying attention to the Chinese market and CreditEases understanding of local investors combines well with our investment expertise. On December 18, 2015, Yirendai, a P2P lending unit under the aegis of CreditEase, was listed on the New York Stock Exchange, the first-ever FinTech company IPO from China in the international capital markets. We are stepping up our pace of investing abroad and bringing in global talents to become a globally respected P2P and wealth management company, said Ning. In November 2016, Ning was invited to speak at the Asia-Pacific Economic Cooperation or the APEC Economic Leaders Meeting in Lima, Peru. Speaking about the invite, Ning said. I will share the Chinese practice of financial innovation with some representatives of leading FinTech (Financial Technology) companies from other countries. Anju Patwardhan (Anju), ex-global chief innovation officer at Standard Chartered Bank, was appointed as a venture partner for the Fintech Business Investment Fund and Fund of Funds of CreditEase by Ning in April 2016. Based in Silicon Valley, USA, Anju worked closely with CreditEases fund management team in China to support its global investment strategy, deal sourcing, and investment management. She played a key role in accelerating the funds position as a preeminent global FinTech investment platform. On her appointment, Ning stated, Ms. Patwardhan is a distinguished banker with profound understanding of inclusive finance which CreditEase has been fostering and practicing for years. She also has the depth of experience and expertise required to support our Fintech agenda. We believe that apart from the role of Venture Partner for CreditEase Fintech Investment Fund and Fund of Funds, Ms. Patwardhan will also contribute tremendously on other business sectors of CreditEase. We wish Ms. Patwardhan a success in her new role and were looking forward to continuing to create value for our investors. By 2016, CreditEase was offering services in wealth management and insurance. It also operated a series of funds that included venture capital and private equity funds of funds, a credit fund to invest in the loan assets of US-based alternative lenders, and direct investment funds. Speaking about marketplace lending in China during an interview in 2017, Ning stated, Two FinTech sectors payments and marketplace lending are more mature than others in China, as they have been around for over 10 years, have massive scale, and operate within robust regulatory frameworks and ecosystems. We think that, over the next decade, sectors like crowd funding, robo-advisors, insurance tech, blockchain and blockchain-driven applications will emerge. Some are behind marketplace lending by 3 years, some by 5 years, and some are behind by even 10 years, but I think all will go through a similar process in China. CreditEase launched YiQiFin, a cutting-edge FinTech platform, at the 4th China SME Investment & Financing Expo in Beijing on July 20, 2016. Being a pioneer in inclusive finance, YiQiFin boosted CreditEases desire to tap into the blue ocean of Chinas financial market by serving the underserved needs of micro, small, and medium enterprises (SMEs) by providing a comprehensive range of services from financing to internal management support. YiQiFin focused on enhancing the business capacity of clients across a wide range of functions for payments, wealth management, internal financial management, and financing processes. Under an innovative model that assimilated elements of specific industry structures, supply chain, the internet, and finance, YiQiFin was placed as a Cloud CFO to facilitate the growth of micro, small, and medium enterprises which were experiencing financing trouble due to limited financial capacity. The company also launched CreditEase Leasing, a small leasing service that targeted small and micro enterprises and rural residents. We several years ago invented something called microleasing. Leasing is usually for aircraft and so onvery big things, but rural Chinese borrowers need small money for equipment purchases, like tractors or heating machines and so on, said Ning. We also invented this so-called live-stock leasing. The first item was the cows. Chinese farmers could lease cows from us. So such innovation is tremendously helpful, added Ning. Further, Ning emphasized that such leases on machines and tractors usually tallied up to around $30,200 to $45,300, with the borrower owning the item at the end of the contract. Based on big data, finance cloud and other innovative technologies, CreditEase had transformed from a microfinance institution with basic working capital to an institution offering inclusive finance and an extensive range of products for a wider customer base in urban and rural areas, including farmers, salaried workers, students, consumers and small businesses by end of 2016. Besides introducing innovative practices at CreditEase, Ning used real-life illustrations to introduce products and services designed in the domain of public interest finance, small and medium enterprise service, microfinance leasing, and small investor wealth management. Thereon, CreditEases Yirendai launched an open technology platform called Yirendai Enabling Platform (YEP) at the 2017 LendIto USA conference in New York from March 6 to 7. YEP was a technology platform that enabled partner companies to utilize Yirendais data acquisition, antifraud technology, as well as customer acquisition capabilities, to help optimize the industrys efficiency and enhance the customer experience. CreditEase represented China as one of the industry leaders at the second annual MultiStakeholder Forum on Science, Technology, and Innovation for the Sustainable Development Goals (STI Forum for SDGs) held at the United Nations Headquarters in New York, in May 2017. Speaking at the event, Ning stated, The traditional financial system lacks inclusivity small businesses, microentrepreneurs, and rural farmers are frequently left out. The advent of FinTech has facilitated the cost-efficient coverage of these previously neglected demographics. As innovative payment and marketplace lending gradually mature, we are now witnessing the ascendance of a new, fast-growing, and vital line of credit for a greater number of borrowers. A report titled Financial Inclusion in the Digital Age co-authored by CreditEase, IFC, a sister organization of the World Bank and member of the World Bank Group, and Stanford Graduate School of Business, stated, Today, FinTech companies are making significant progress in promoting financial inclusion through innovative business models, products and increased use of emerging technologies such as digital identity, Internet of Things (IoT), Artificial Intelligence (AI) and machine learning. The report was co-authored by Anju, Kai Schmitz, and Investment Lead for the Global FinTech Investment Group of IFC; and Kenneth Singleton, Adams Distinguished Professor of Management at Stanford Graduate School of Business. The report included a list of Top 100 FinTech companies globally that were supporting Financial Inclusion in the Digital Age across four main verticals of impact: payments, lending and related ecosystem, savings and financial planning, and insurance. Those companies were mission-driven but were also focused on providing attractive risk-adjusted returns to their investors. Those companies were but one key component of an evolving financial services ecosystem. As we evolve towards increasingly digital and open banking systems, I envision many of the companies highlighted in this report as becoming central players in bundled, more inclusive services from major banks and market-place platforms, said Professor of Management at Stanford Graduate School of Business, Ken Singleton. In the past 11 years, CreditEase has grown from Chinas first marketplace lending platform to a fullservice FinTech company with a global footprint, said Ning. We have innovative products across lending, savings and wealth management, and insurance verticals. As a firm believer of an innovationdriven new economy, we welcome this report that explores innovative solutions for promoting inclusive finance and we look forward to continuously contributing to this worthy cause in the next phase of our journey.31(Refer to Exhibit I for details on CreditEase milestones over the years). In March 2019, CreditEase stated that its investment unit, CEFIF, led the investment of Qupitals Series A capital raise of US$15 million, with additional capital injections from the Alibaba Entrepreneurs Fund and Mind Works Ventures following their initial investments in the seed round. Qupital planned to use the funds to expand its presence in mainland China, enlarge its technology development and risk management teams, and strengthen its fast-growing, cross-border e-commerce expansion.32 Further, in March 2019, CreditEase announced that its investment unit, CEFIF, had participated in a US$125 million Series B financing round of Berlin-based insurance technology firm Wefox Group. By 2019, CreditEase Inclusive Finance had built a sturdy countrywide network covering 255 cities including Hong Kong and rural areas in 20 provinces across China. This not only helped urban customers get non-collateral and nonguaranteed credit loans, or car and home mortgages but also provided financial services to rural customers including farm products, machinery leasing, as well as supply chain financing counseling. As the bellwether of the FinTech industry, CreditEase kept exploring innovative paths to develop inclusive finance by innovating on products and services and creating and unlocking credit value to promote individual development and social progress. INTERNATIONAL EXPANSION OF CREDITEASE CreditEase had started pushing for overseas investments ever since 2013. CreditEase Wealth Management established its first office for overseas business in Hong Kong, China. It established the Singapore branch in 2014, the Israel branch in 2015, the New York office in 2016, and the Silicon Valley branch in San Francisco in 2017. In 2018, CreditEase Wealth Management expanded the European market and branches and obtained corresponding licenses in the local markets. CreditEase had also been investing in many locations across the world. San Francisco, one of the locations of CreditEases overseas investments, expressed its gratitude to the company for its contributions to the city, among other things, at the Silicon Valley-Beijing Dialogue 2017 summit. Good Hope Investment, a sub-brand of CreditEase Wealth Management, which offered all-round overseas planning for investment immigration clients, received special thanks from both the incumbent and former mayors of San Francisco for its excellent contribution to the citys urban construction and the future development of Silicon Valley, US. We have made firm steps to go global in the FinTech area, said Ning. The Silicon Valley-Beijing Dialogue is an opportunity to test what we have made and marks an important milestone in CreditEases internationalization, added Ning. THE IMPACT Thanks to the continuous efforts it had been making ever since its inception, CreditEase grew into a globally leading FinTech company, promoting the growth of inclusive finance and wealth management in China. In July 2012, Yinongdai won the Outstanding Public Welfare award for its poverty alleviation and agricultural welfare project. In the 2017 FinTech 250 list released by CB Insights on June 27, 2017, enterprises in which CreditEases FinTech Investment Fund and Overseas Private Credit Fund invested made the cut. Ribbit Capital, another venture capital firm invested in by the US dollar-denominated CreditEase Wealth Management Private Equity FOF, invested in 17 enterprises listed on the FinTech 250. (Refer to Exhibit III for details of CreditEase awards and accolades). Yirendai had provided over 70 billion loans by 2017. It partnered with top firms including Baidu and PICC. Also, Yirendai worked with banks, consumer finance firms, charities, and many more organizations. It had over 1 million fraud detection points, more than 12 years of risk control experience and data. Further, CreditEases SME financing platforms like CreditEase Leasing and YIQFIN were supporting more than 30 domestic and international platforms like eBay, PayPal, Amazon, and Kingdeeby 2017. CreditEase Leasing and YIQFIN had expertise in 15 vertical industries in 2017. By 2018, Ning had expanded CreditEase into new arenas, particularly with the 2016 launch of its $1 billion CreditEase FinTech Investment Fund (CEFIF), a Fintech focused venture fund backed by CreditEase, which had invested in over 45 firms, mostly in China and the US. The company received the Star of Innovation in Fintech award given by the Global Finances Stars of China awards which honored the strongest and most innovative financial leaders in China. With about 5 million global customers, including 1 million wealth management clients, CreditEase was building a global presence. Its network covered 255 cities, including Hong Kong, Singapore, Tel Aviv, and New York, as well as much of rural China. CreditEase worked with a vision build financially inclusive society through big data, blockchain, and Internet-of-Things applications, and had pledged to continue innovating.r In January 2018, CreditEase Inclusive Finance won the Best Social Platforms Communications of Tencent Financial Marketing Award. In February 2018, CreditEase Wealth Management was named Outstanding Wealth Management Company in China of Asian Private Banker.sIn April 2018, CreditEase announced that Yirendai and its investment business unit, CEFIF, had attended the LendIt Fintech USA 2018 conference held from April 9 to 11, 2018, in San Francisco. As the exclusive Global Leader partner of LendIt Fintech US 2018, Yirendai was named the Top Consumer Lending Platform and was the only Chinese enterprise to receive a LendIt Fintech industry award. This demonstrated high recognition of its outstanding contributions to the innovation of the financial services industry.38In April 2018, CEFIF received global recognition as Top Fintech Equity Investor at the 2018 LendIt USA conference, one of the largest global Fintech industry events. CEFIF was also ranked number 3 among Early-Stage Fintech Investors in the US by Crunchbaset News for the good performance of its portfolio companies. In July 2018, CreditEase came in for praise for its Fintech venture fund in a CB Insights report. The report stated, The CreditEase Fintech Investment Fund is number three in the world when it comes to ranking the most active Fintech VCs in the world. By 2018, CreditEase Fintech Investment Fund maintained around $ 1 billion in committed capital in both RMB and US Dollars. By 2018, the Fund had invested in more than 45 Fintech firms internationally, with China and the US as the primary investment markets. CreditEase noted that five of its investments had achieved Unicorn status. They were: Dasouche (China), Tiger Brokers (China), Funding Circle (UK), Trade Shift (US), and an unnamed cryptocurrency firm. The Fund invested in five subcategories within FinTech: Lending, Payments, Personal Finance / Wealth Management, Enterprise Solutions, and Insurtech. Further, in November 2018, CreditEase Wealth Management received the Best Social Impact Project in Wealth and Society in China Award at The Global Wealth and Society Awards 2018. Upon receiving the award, Ning stated, We are entering a new era in which people are thinking about how to better use the wealth they created for the society, for China, and for the whole world. CreditEase Wealth Managements fund of funds (FoF) had been helping connect private capital with technological innovations globally, financing the expansion of high-growth companies that were considered to have the potential to become unicorns. The FoF had been empowering clients to invest in top tier private equity and venture capital fund managers, who have immensely contributed to the development of the global economy. Combining the knowledge and networks of CreditEase Wealth Management and the wealth of its clients, it aimed to drive the innovation of frontier technologies and make a positive impact on the global community, and ultimately create a better world. Further, CreditEase Wealth Management had a unique vision to help society it had the service of family succession plus charity, that incorporated charity into family succession and made continuous contributions to the society by means of income donation trust or a charitable sub-trust. Also, CreditEase Wealth Management conducted investor education and financial education for high net worth investors and teenagers. On January 11, 2019, Asian Private Banker, a renowned private bank and wealth management research house in the Asia Pacific, honored CreditEase Wealth Management the Best Wealth Manager for Digital Innovation, the Best Wealth Manager for High Net Worth Services, and the Best Wealth Manager for Alternative Advisory and Excellence Wealth Manager in China domestic categories. Lin stated, As a longstanding member of the FinTech industry, the spirit of digital innovation and research is institutionalized throughout CreditEase, and we have been committed to developing strong technological capabilities, and using science and technology to promote financial innovation and wealth management. As an example of how we integrate digital innovation in our wealth management business, we developed the AI + FoF system, utilizing machine learning for data storage, sorting, structural analysis and real-time tracking. This innovation was implemented to improve FoF managers investment capability and management capability. CHALLENGES AND THE ROAD AHEAD With the number of successful Chinese FinTech firms was on the rise, the PBOC and the China Banking Regulatory Commission were becoming concerned about how quickly the FinTech industry had risen. They were also worried about their ability to keep up with the growth. The two policymakers cracked down on cash loan micro-lenders. Ning stated, We still dont have a wellestablished credit bureau infrastructure. He added, We still have a long way to go. Trouble started brewing in China in 2016 when statistics released by the Chinese Banking Regulatory Commission showed that around 40% of the P2P lending platforms were Ponzi schemes. This forced authorities to tighten regulations with the introduction of over 100 new rules, slowly implemented in order to reduce fraudulent or poor business practices that plagued the industry in China. This triggered the closedown of P2P lending platforms; over 900 closed down by the end of 2016. In 2017, the FinTech industry in China saw a large regulatory crackdown on P2P firms that prevented these firms from accepting deposits, guaranteeing loans, securitizing assets, or using funds for own projects. In December 2017, the Peoples Bank of China and the China Banking Regulatory Commission the central bank and banking watchdog, issued new rules to clean up its controversial cash loan and online microlending market, including prohibiting lending to people without an income and putting a curb on the total charges on runaway credit. Cash lenders had grown rampantly in China to the extent that issues like over lending, repeated credit extension, unregulated payment collection and extremely high-interest rates charges and violation of individuals privacy had emerged, the notice issued by the two warned. This order was immediately effective. It stated All organizations and individuals must obtain a license to conduct lending business. All lending institutions must also state clearly a comprehensive charge, which includes interest rates and various fees charged for different categories of offerings for the loan. The regulatory authorities in China proposed 10 measures to reduce risk in the P2P sector, including a strict ban on new P2P companies and online finance platforms, and a blacklist under Chinas social credit rating system for those who did not repay their loans in August 2018. The shares of some of the Chinese P2P companies listed in the US plunged. China Rapid Finance shares lost 73%, while Yirendai slumped 71%; PPDai dropped 44%, and Hexindai 27% in 2018. Ning told Reuters in an interview that he was concerned that the industry-wide panic could escalate. He requested regulators to act with a sense of urgency to protect trustworthy P2P companies while punishing bad players to avoid harming Chinas financial system and economy. Otherwise, it will be winter for the industry. All companies will be hit, both illicit and compliant. Everyone will lose and thats a situation no one wants to see. Small businesses will lose an important, or the most important source of funding. Thats not only hurting the financial system but also the real economy. According to Sara Hsu, Associate Professor of Economics at the State University of New York, Chinas FinTech industry was facing various major challenges. The sector had a shortage of skilled workers with Chinas labor pool struggling to keep up with FinTechs rapid rise in the country. Companies were also facing difficulties in filling positions for software developers and product managers. Consequently, this acted as a constraint on the superfastgrowing young industry, underlining the need for further investment in the training of new workers.46Further, Richard Pearson (Richard), an activist investor in US and Chinese stocks, wrote in the Seeking Alpha online portal that problems specific to Yirendai were even worse than the generic problems of the industry as a whole. According to Richard, shares of Yirendai had been shunned by traditional China smart money. Outside ownership was dominated by a few US quant funds which performed little fundamental research. When Ning was asked about some of the risks that P2P companies face, he noted There are three major risks. One is the platform itself. Is it legit? Is it legal? In many cases, you see fraud. Its not financial innovation at all, its a crime. The regulatory framework helps eliminate fraud cases. The second risk is on the borrower, the credit quality side. Even if its a legit market place, if it cannot assess risk, it will not be sustainable. It needs to do a good job of assessing risk. The third risk is on the lending sideis the source of capital sustainable? Its going to get worse before it gets better; more regulatory shake out that will take place, Andrew Polk (Polk), founding partner of Beijing-based research firm Trivium, told TechNode. Chinas leadership has made financial risk mitigation a top economic priority, in which P2P lending plays a crucial role. Authorities will not back down, at least not in 2019, said Polk. However, Ning was optimistic about the future of the FinTech sector in China. With a US $1.890 billion financing gap for Chinas 56 million MSMEs, there was a felt need for FinTechs, said Ning. Ning emphasized FinTech was a trillion-dollar market and the regulatory guidelines that were issued for regulating the FinTech companies including CreditEase and making them stronger were helpful for the growth of the industry. Today we can reach small businesses and entrepreneursbusinesses that were not traditionally covered by the Chinese financial system. Fintech helps make the financial system more comprehensive, and helps make financial services more efficient, said Ning.49Ning noted, We believe that everyone everywhere should have groundbreaking access to financial security and opportunity, and we believe that technology can serve as a catalyst for that change. *****************End of Case********************* Required: Question 1: Critically discuss how CreditEase built a business to enable financial inclusion. (700-800 words, 60 marks) Question 2: Evaluate the key factors for the growth of CreditEase globally. (250-350 words, 40 marks)